· Group performance for the year impacted by uncertainty in key markets and operational issues, as previously reported

· Ongoing market uncertainty continues to affect visibility

- Year end order book of £760.9 million, down 13% on 2011

· Appointment of new senior leadership team in order to address key operational issues

· Management focus in 2013 will be on addressing Chemring's operational performance

· Management's initial review of operations has identified five key priorities for performance recovery, the benefits of which are expected to be seen from 2014 onwards

- Strengthen and simplify the management structure

- Integration of operating units

- Operational performance improvement

- Focussed business development

- Prioritisation of cash and cost management

Peter Hickson, Chemring Group Chairman, commented:

"2012 was a particularly disappointing year for the business, characterised by uncertainty in our markets and a number of factors that disrupted our operational performance.

These difficult market conditions are expected to remain in place in 2013, with defence spending in the US, UK and Europe likely to remain under significant pressure. However, following the appointments of Mark Papworth as Chief Executive and Steve Bowers as permanent Finance Director, we now have the leadership in place to address the operational issues that contributed to our recent underperformance.

The emphasis in 2013 will be on driving operational performance efficiency, and reorganising the business to create efficiency, resilience and more focussed business development, during what will be a difficult period for the defence industry. In parallel, cash, cost management and debt reduction will be absolute priorities across the Group, all with the ultimate aim of returning Chemring to profitable growth.

Although the defence industry is facing significant challenges in the near term, Chemring's leading market positions, innovative products and manufacturing expertise should ensure that our underlying business remains robust in the face of market pressures. Whilst the new management team is actively addressing the issues and opportunities, 2013 is still expected to be a challenging year for Chemring, and therefore the Board's expectations for the year remain unchanged."

* Before non-underlying items (see Note 3)

For further information:

Mark Papworth

Chief Executive, Chemring Group PLC

01489 881880

Steve Bowers

Finance Director, Chemring Group PLC

01489 881880

Rupert Pittman

Group Director of Communications and Investor Relations,

Chemring Group PLC

01489 881880

Andrew Jacques

James White

MHP Communications

0203 128 8100

Cautionary statement

This announcement contains forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as anticipate, target, expect, estimate, intend, plan, goal, believe, will, may, should, would, could, is confident, or other words of similar meaning. Undue reliance should not be placed on any such statements because they speak only as at the date of this document and, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and Chemring's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements.

There are a number of factors which could cause actual results to differ materially from those expressed or implied in forward-looking statements. Among the factors that could cause actual results to differ materially from those described in the forward-looking statements are; increased competition, the loss of or damage to one or more key customer relationships, changes to customer ordering patterns, delays in obtaining customer approvals for engineering or price level changes, the failure of one or more key suppliers, the outcome of business or industry restructuring, the outcome of any litigation, changes in economic conditions, currency fluctuations, changes in interest and tax rates, changes in raw material or energy market prices, changes in laws, regulations or regulatory policies, developments in legal or public policy doctrines, technological developments, the failure to retain key management, or the key timing and success of future acquisition opportunities or major investment projects.

Chemring undertakes no obligation to revise or update any forward-looking statement contained within this announcement, regardless of whether those statements are affected as a result of new information, future events or otherwise, save as required by law and regulations.

Notes to Editors

• Chemring is a manufacturing business with facilities in eight countries selling high technology electronics and energetic products to over sixty countries worldwide.

• The Company has a diverse portfolio of products protecting military people and platforms against a constantly changing threat.

• Operating in niche markets with short product development timescales, Chemring has the agility to rapidly react to urgent customer needs.

• Strong R&D investment for new products and improvements in technology continually allows Chemring to expand its addressable markets.

The presentation slides and a live audio webcast of the presentation to analysts will be available at the Chemring Group results centre www.chemring.co.uk/resultscentre at 09.30 (UK time) on Thursday 24 January 2013. A recording of the audio webcast will be available later that day.

Photography

Original high-resolution photography is available to the media by contacting James White, MHP Communications. James.White@mhpc.com / Tel: 0203 128 8100

CHAIRMAN'S STATEMENT

2012 was extremely disappointing for Chemring, our shareholders, our customers and our employees. During the course of the year, against an already challenging market background, a number of additional issues disrupted the operational performance of the business, including problems with the supply chain, contract delays and changes in senior management.

Although the general decline in defence spending in a number of our markets had a significant impact on trading during the year, a large proportion of the problems that affected the Group's performance stemmed from operational issues within the business, a failure to anticipate the impact of changing market dynamics, and poor management of expectations. Overall, this resulted in a significant decline in the market value of the Company.

However, with the appointment of Mark Papworth as Chief Executive in November 2012, followed by the appointment of Steve Bowers as Finance Director in January 2013, we are now rebuilding the senior management team required to lead our recovery. This recovery will focus on operational performance efficiency, margin improvement, and business reorganisation to enable the Group to deal with the ongoing challenges in its end markets. Turning to the balance sheet, there will need to be a tighter focus on the generation and management of our cash flows in order to reduce our levels of debt. The objective is to ensure the business is well-positioned to operate effectively in an environment of constrained defence spending, and to ensure the Group can return to profitable growth.

Trading

Chemring's trading result during 2012 was unsatisfactory. Defence spending pressures on both sides of the Atlantic, but particularly in the USA, affected a number of defence companies during 2012 and Chemring was no different. We failed to anticipate and react to those changing market dynamics quickly enough and to understand the impact on our businesses. Our trading performance suffered as a result. In addition, the overall performance also reflected specific issues at several of our subsidiary companies.

We reported a number of issues during the year. At our Florida subsidiary, we encountered problems with the installation of a new resource planning system which, together with delays on a major contract, considerably eroded its profit. At the year end, the Group's results were significantly below expectations, as we experienced a delay in the receipt of a major order from the Middle East, continued to suffer technical problems with a specific countermeasure product, and were unable to deliver as much of a vehicle based mortar system product as we had anticipated due to export licence difficulties.

Overall, revenue for the year was £740.3 million, an increase of 2%, generating an underlying operating profit* of £88.3 million, down 35%. Underlying profit before tax* fell by 42% to £70.1 million, producing underlying earnings per share* of 28.5p, a fall of 43% against the previous year.

The order intake for the Group was £660.2 million, which is 17% lower than last year. Although we saw strong order growth in our Counter-IED and Pyrotechnics businesses, this was offset by a downturn in order intake within Countermeasures and Munitions. The Munitions segment was affected by export licence delays, and the timing of orders, with several large multi-year contracts having been received in the prior year. The lower order intake in the Countermeasures segment principally reflects lower customer demand, driven by government fiscal and budgetary controls. As a result, the Group's closing order book reached £760.9 million, down 13% on 2011.

GROUP RESULTS

An analysis of the underlying results is set out below:

2012

2011

£m

£m

Total continuing revenue

740.3

724.1

Divisional continuing operating profit

98.8

145.8

Unallocated corporate costs

(10.5)

(10.0)

Underlying continuing operating profit

88.3

135.8

Share of post-tax results of associate

0.1

0.1

Finance income

0.1

0.1

Finance expense

(18.4)

(15.8)

Underlying continuing profit before tax

70.1

120.2

Tax on underlying continuing profit before tax

(15.1)

(27.3)

Underlying continuing profit after tax

55.0

92.9

Total continuing revenue was £740.3 million (2011: £724.1 million), an increase of 2%.

Revenue generated during the year by Chemring Detection Systems, acquired in July 2011, was £51.9 million (from acquisition in July 2011: £14.6 million), representing an increase of 5% of total continuing revenue. During the year, the Euro depreciated against sterling, which reduced the reported sterling revenues of Euro subsidiaries by £12.2 million, although this was partially offset by increases of £3.9 million on US dollar and other currencies. This gave a net decrease due to currency effects of £8.3 million, equivalent to 1%. Organic revenue~ reduced by 2%.

An analysis of revenue and divisional operating profit by segment*, excluding unallocated corporate costs, is set out below:

2012

2011

Revenue

£m

Underlying

operating profit*

£m

Underlying

operating

margin

Revenue

£m

Underlying

operating profit*#

£m

Underlying

operating

margin

Counter-IED

205.3

43.9

21%

167.6

31.9

19%

Countermeasures

184.1

18.3

10%

200.8

46.7

23%

Pyrotechnics

123.0

12.3

10%

118.7

26.4

22%

Munitions

227.9

24.3

11%

237.0

40.8

17%

Divisional results

740.3

98.8

13%

724.1

145.8

20%

Counter-IED revenue increased 22% to £205.3 million, due predominantly to the full year impact of Chemring Detection Systems, which contributed additional revenue of £37.3 million. Operating margins increased to 21%, largely due to a strong result from Chemring Detection Systems.

Countermeasures revenue decreased by 8%, due principally to lower demand for decoys at Alloy Surfaces. Margins decreased considerably, predominantly due to the two issues identified in the Group's trading update issued on 1 November 2012 - technical problems on the development of a countermeasure, which resulted in the product not being accepted by the customer and considerable rework costs, and a delay in the receipt of a multi-year contract for the supply of aircraft countermeasures to a customer in the Middle East. In addition, profit at Alloy Surfaces has decreased in line with revenue, and given the high margins achieved historically by this business, this has led to a further decline in the segmental margin.

Pyrotechnics revenue increased 4% to £123.0 million, although underlying operating profit* decreased by 53% to £12.3 million. This was principally due to lower demand for 81mm illumination products and production issues at Hi-Shear, which were compensated for in revenue terms by other lower margin product sales.

Munitions was largely flat, with revenue at £227.9 million. Mecar's margin declined in the second half, largely due to issues on a contract for the supply of vehicle based mortar systems for a Middle Eastern customer. The issues were attributable to delays in the granting of export licences for a limited number of parts. The licences are now being issued but substantial progress is unlikely to be made on this contract until 2014.

Unallocated corporate costs were £10.5 million, slightly higher than in 2011, due largely to additional costs associated with the Group's London office, which has been vacated since the year end.

As a result of the above, total underlying operating profit* was £88.3 million (2011: £135.8 million), a decrease of 35%.

Total underlying operation margin* reduced to 12% from 19% last year. This reduction reflects the decreases in the Countermeasures, Pyrotechnics and Munitions segments, as explained above.

Finance income in the year was £0.1 million (2011: £0.1 million). Finance expense for the year was £18.4 million (2011: £15.8 million), an increase of 16%. The increase is largely due to higher average debt during 2012, compared with 2011. Included within finance expense is £0.8 million (2011: £0.7 million) for retirement benefit obligations.

Underlying profit before tax* was £70.1 million (2011: £120.2 million), a decrease of 42%.

Tax on underlying profit before tax* was £15.1 million (2011: £27.3 million), representing an underlying tax rate of 22% (2011: 23%). The tax rate is lower than the UK corporation tax rate, due predominantly to the utilisation of R&D tax credits across the Group, particularly at Roke, and the utilisation of tax losses within our European businesses which had not previously been recognised.

Underlying profit after tax* was £57.1 million (2011: £96.8 million), a decrease of 41%.

Analysis of non-underlying items

The Board monitors underlying operating profit and underlying profit before tax for reporting purposes so as not to distort year-on-year comparisons; hence, certain items are classed as non-underlying as set out below:

2012

£m

2011

£m

Acquisition and disposal related costs

8.2

5.7

Restructuring and incident costs

11.9

7.2

Profit on disposal of business

(10.3)

-

Impairment of goodwill

22.5

-

Intangible amortisation arising from business combinations

20.9

24.3

Gain on fair value movements on derivatives

(1.9)

(2.4)

Total non-underlying items

51.3

34.8

Acquisition and disposal related costs include costs associated with the approach by a third party in connection with a potential offer for the Group, external costs incurred in acquiring businesses, costs associated with aborted bids, and costs associated with the establishment of joint ventures.

In 2012, restructuring and incident costs comprised costs related to the closure of the Group's Marshall, Texas site (£3.3 million), the restructuring of the Group's US countermeasures businesses (£2.5 million), the restructuring of the Group's UK operations (£2.6 million), and an additional £1.5 million relating to several smaller restructuring projects. There were also a number of Board changes during the year, resulting in associated costs of £2.0 million. Further details of the compensation for loss of office payments of £1.1 million and deferred share awards worth £0.3 million received by two of the former executive directors will be set out in the 2012 Annual Report. The balance of the costs relate to recruitment, and various other legal and professional fees.

The profit on disposal of business relates to the sale of the Group's marine pyrotechnics business, further details of which are provided below.

Following a detailed review, impairment losses have been recognised in relation to Chemring Ordnance (£6.8 million) and Chemring Energetic Devices (£15.7 million) at the year end, totalling £22.5 million (2011: £nil). The impairment losses were based on value-in-use calculations and relate only to goodwill. The impairment charges were primarily driven by business valuations that were negatively impacted by lower cash flows within business plans, reflecting the challenging economic conditions facing the defence industry within the US.

Intangible amortisation arising from business combinations decreased in the year, despite a full year's charge for Chemring Detection Systems. This is due to some intangible assets arising on previous acquisitions being fully amortised.

A gain on derivatives of £1.9 million arose (2011: £2.4 million gain), due largely to movements in interest rates during the year.

BUSINESS REVIEW

Counter-IED

- Orders received: £252.0 million

- Revenue: £205.3 million

- Underlying operating profit: £43.9 million

- Underlying operating margin: 21%

Counter-IED revenue in 2012 was £205.3 million, 22% higher than the previous year, driven mainly by the full year contribution of Chemring Detection Systems, which was acquired in July 2011. NIITEK's revenue for the year was flat compared to 2011, primarily due to the delayed placement of the $579 million HMDS (Husky Mine Detection System) IDIQ (indefinite delivery/indefinite quantity) contract, which impacted deliveries in the first half of the year.

Deliveries were also delayed on Chemring Ordnance's IDIQ contract for the supply of Anti-Personnel Obstacle Breaching Systems (APOBS) to the US Army, as a result of problems with a US Government directed supplier who had to implement new processes and improvements in order to meet current government standards. The supplier is now delivering, and APOBS is expected to complete its first article test in February, with production commencing thereafter.

The closing order book for Counter-IED was £172.8 million, up 36% on 2011, as a result of major orders for HMDS, chemical and biological detection products, and the APOBS minefield breaching system.

During the year, threat detection remained the dominant element of our activity in the Counter-IED segment, with our expanded range of products covering chemical and biological agents, as well as improvised and concealed explosive devices. The most significant contract of the year was NIITEK's $579 million HMDS IDIQ contract. This three year contract, with an initial order worth $161 million, provides the US Department of Defense with the means to procure spares and replacement systems to replenish theatre sustainment stock, as well as providing new systems for the US Army, the US Marine Corps, and US Government supported Foreign Military Sales. A second delivery order worth $32 million was awarded to NIITEK in December 2012.

NIITEK also won new export orders for the HMDS, with the award in October 2012 of a $6.9 million contract from the Commonwealth of Australia for the production and delivery of ten complete systems, and associated spare parts, for the Australian Army. NIITEK also secured its first order in Europe, with a $5.9 million contract from MBDA Italia S.p.A for the supply of the "Mine Buster" Ground Penetrating Radar (GPR) systems, and logistics support to the CALIFE 3 Italian Army Programme for the Italian Ministry of Defence. Deliveries under the contract will be made in 2013, and will support the Italian Army's Route Clearance Mission. NIITEK has established a partnership with Critical Solutions, Inc., the manufacturer of the Husky vehicle, to jointly promote the vehicle and detector to the international market. The partnership recently completed a successful demonstration to the Turkish Army's Engineering School.

NIITEK continues to enhance its technology base and product offering with incremental product upgrades, as well as development of hand-held, robot-mounted and multi-sensor solutions. Following successful evaluation of its RVIS remote visualisation system, NIITEK won a contract, potentially worth up to $18 million, to produce 102 RVIS systems and initial spare parts, and deliver technical support, training and logistics data in support of Operation Enduring Freedom (OEF). The RVIS system provides remote viewing of the HMDS graphical user interface display in a follow-on vehicle, providing improved situational awareness to the route clearance package. NIITEK also established a partnership with Minelab Electronics Pty Limited, to incorporate Minelab's proven metal detection technology into a new prototype dual sensor hand-held detector, which was completed in July.

Chemring Detection Systems performed well in its first full year under Chemring's ownership. In the US, it won two key orders for its chemical and biological detection systems. The first, announced in February 2012, was a $29 million contract to supply over one hundred Joint Services Lightweight Stand-off Chemical Agent Detectors (JSLSCAD) for the US Army's Stryker Nuclear Biological Chemical Reconnaissance Vehicle (NBCRV). The second was a $49 million contract award to supply Joint Biological Point Detection Systems (JBPDS) for installation on Stryker NBCRVs and US Navy ships such as the USS Ross (DDG 71). Chemring Detection Systems also delivered an export contract for JBPDS to Japan, and completed a six week in-country operator training course for the Japanese Ground Self Defence Force.

The outlook for the Counter-IED segment is positive. Most militaries have identified that there is a significant and growing gap in their capabilities to deal with the persistent and rapidly evolving threat of IEDs as the insurgent's weapon of choice. We are seeing sustained interest in our detection, jamming and defeat products, from both NATO and non-NATO users. Even in the budget-constrained environments in the UK and US, new programmes of record are being developed to ensure that forces are equipped with state-of-the-art equipment, irrespective of current operations in Afghanistan.

Countermeasures

- Orders received: £131.5 million

- Revenue: £184.1 million

- Underlying operating profit: £18.3 million

- Underlying operating margin: 10%

In 2012, revenue from the Countermeasures segment was £184.1 million, down 8% on the previous year, mainly due to reduced NATO demand as customers reduced stockpiles in anticipation of withdrawal from Afghanistan. Sales at our US subsidiary, Alloy Surfaces, and at our UK subsidiary, Chemring Countermeasures, were most affected. This situation was exacerbated at the end of the year by a delay in receipt of a multi-year contract for the supply of aircraft countermeasures to a customer in the Middle East, and technical problems on the development of a new countermeasure, which resulted in it not being accepted by the customer until further tests have successfully taken place.

The combination of these issues affected revenue, and had a major impact on profit for the year, which, at £18.3 million, was down 61% on the prior year. Delay to the Middle East order meant that profit could not be recognised as expected under contract accounting policies, on product that had been manufactured during the year in expectation of that order award. The customer is reconsidering the timing of the order placement, and it is now considered unlikely that the full contract will be placed before the end of the current financial year. The product development issue related to the supply of a newly developed countermeasure, where several lot acceptance test failures required a substantial provision to be made to recognise the costs and implications involved in meeting acceptance conditions. Work to resolve the technical problem is ongoing, and further customer acceptance tests are planned during the second half of the year.

The closing order book for the Countermeasures segment was £182.3 million, down 22% on the previous year. This reflects lower orders for flares of all types, particularly in the US market.

The outlook for the air countermeasures business is tight, with the decline in NATO procurement being faster than non-NATO growth. Delays in Joint Strike Fighter deliveries and expected in-service dates will correspondingly delay major procurements of warstock for these fleets. This will drive some capability extension to existing platforms, and there is growing interest in Alloy Surfaces' pre-emptive solutions in the US, NATO and the Middle-East. There is also a growing capability gap in customers' naval countermeasure inventories, and there is interest in improved naval decoys and launchers. However, the timing of orders in tight budget environments remains uncertain. In land EW, a growing user community and an in-service fleet of equipment creates both a demand for upgrades and a momentum of interest in next generation equipment.

Pyrotechnics

- Orders received: £130.6 million

- Revenue: £123.0 million

- Underlying operating profit: £12.3 million

- Underlying operating margin: 10%

In 2012, revenue from our continuing operations in military and aerospace pyrotechnics was £123.0 million, which is 4% higher on a like-for-like basis than in 2011. This increase resulted from growth in sales of pyrotechnic products and rounds to the Middle East, which offset the reduction in deliveries of illumination mortar rounds to the UK, which were affected by supply chain issues in the first half of the year. This also substantially reduced the profitability of this segment. Sales of training and simulation products were down 50%, reflecting reduced demand for training grenades in the US. Space and safety systems' revenues were broadly flat.

In addition to the impact of product mix on the profitability of the segment, Chemring Ordnance also identified significant errors in the data underpinning its resource planning system. Issues that led to this problem are now well understood and corrective action has been taken such that the problems will not reoccur.

The closing order book was £178.2 million, up 24% on the previous year, due to the receipt of UK orders for illumination rounds, Middle East demand for pyrotechnic rounds and products, and orders for space components.

In July, the Group completed the sale of its marine safety pyrotechnics business to Drew Marine, for £30.4 million. The focus of this business on the commercial and leisure market was no longer aligned with the growth strategy of the Group, and it was clear that Chemring Marine would benefit from new owners, who would provide the investment needed to expand its marine safety business and to develop its global maritime safety network.

The outlook for pyrotechnics is stable, with space and safety systems sustained by long term programmes and large in-service aircraft fleets. In recent years, military signal and illumination enjoyed a major surge in demand, as a result of UK demand for 81mm illumination mortars, but this has now levelled, with some orders still to be delivered to the UK, and continued requirements from the Middle East.

Munitions

- Orders received: £146.1 million

- Revenue: £227.9 million

- Underlying operating profit: £24.3 million

- Underlying operating margin: 11%

In 2012, our Munitions revenues were £227.9 million, a 4% reduction from 2011. Ammunition sales for land forces grew by 55% in the year, in both Europe and the Middle East, and naval ammunition and component sales remained steady during the year. This was offset by the delayed delivery of mortar systems, due to extended delays in the granting of export licences for a limited number of critical components. These licences have recently been issued, and deliveries should commence in the 2014 financial year, when a customer-funded contract modification has been finalised.

The profitability of the segment fell significantly as a result of the different product mix in the year.

The closing order book for the Munitions segment was £227.6 million, a reduction of 39% on the previous year, notably due to delays in the placing of significant munitions contracts both at Simmel and Mecar. Delays in the granting of export licences were also a significant factor. About 75% of the order book is from non-NATO customers.

Chemring operates in the global market for naval ammunition, and mainly in the non-NATO market for land forces' ammunition. The naval market has suffered budget constraints, with NATO countries struggling to fund their land operations in Afghanistan, but demand is expected to remain steady. Defence budgets in the Middle East and Far East are growing but local volatility and export licence risks mean that the market for land forces' ammunition will remain a challenge.

Principal risks and uncertainties

The principal risks and uncertainties which could have a material impact on the Groups performance and could cause actual results to differ materially from expected and historical results have not changed significantly from those set out in the Group's 2011 Financial Statements and the 2012 Interim Report. These can be summarised as:

· Health and safety risks

· Political and economic risks, including possible defence budget cuts

· Risks associated with the timing of receipt and value of orders

· Risks associated with the introduction of new manufacturing facilities

On 31 July 2012, the Group sold its marine interests to Drew Marine for £30.4 million. This figure is less than the £32 million anticipated sale proceeds announced on 6 June 2012, due to a working capital adjustment determined at the completion date. The marine business included operations in four jurisdictions, and restructuring of each individual business was required in order to facilitate a sale. This involved separating the German manufacturing facility into two for the retained defence business and the marine business, together with a carve-out of the marine activities from the Group's defence businesses in Spain and Australia.

The net assets of the marine interests at the date of disposal were £10.3 million. Attributable costs associated with the disposal were £9.8 million. The profit on disposal of the marine interests was £10.3 million.

The deferred working capital adjustment was settled in cash by the Group in December 2012.

Research and development

Research and development expenditure totalled £59.0 million (2011: £59.6 million), 1% lower than last year. The continued significant spend supports the Group's investment in future growth. An analysis of expenditure is set out below:

2012

£m

2011

£m

Customer-funded research and development

34.4

38.4

Internally-funded research and development

24.6

21.2

Total research and development expenditure

59.0

59.6

Of the internally-funded research and development costs, £12.3 million (2011: £12.4 million) was capitalised in the year. The Group's policy is to amortise capitalised development costs over a three to five year period from the date on which the intangible asset is available for use. Amortisation of development and patent costs was £4.6 million (2011: £2.6 million).

Pensions

The deficit on the Group's defined benefit schemes before associated tax credits, as defined by IAS 19 Accounting for pension costs, was £27.0 million (2011: £25.2 million).

The Chemring Group Staff Pension Scheme is a defined benefit scheme, with the assets held in a separate trustee-administered fund. The Scheme was closed to future accrual on 6 April 2012, resulting in a curtailment gain of £1.4 million. A full actuarial valuation for the Scheme as at 6 April 2009 has been prepared and updated to 31 October 2012 by a qualified actuary, using the projected unit credit method. The triennial valuation at 6 April 2012 is currently being progressed, and is expected to be signed-off in the coming months. The Group has given a bank guarantee and letters of credit totalling £27.2 million (2011: £27.2 million) to the Scheme. A £20 million letter of credit may be drawn by the Scheme trustees in June 2014, subject to the size of the deficit of the Scheme at April 2014. The remaining £7.2 million bank guarantee may only be drawn upon certain events of default by the Company.

Our UK employees are now offered membership of a defined contribution pension scheme. The majority of our overseas pension arrangements are also defined contribution, save in those European countries where certain defined benefit pension arrangements are required.

Cash flow

Underlying operating cash flow* was £114.9 million (2011: £118.6 million), which represents a conversion rate of underlying profit, before interest, depreciation and amortisation*, to operating cash of 103% (2011: 76%).

A summary of underlying Group cash flow is set out below:

2012

£m

2011

£m

Underlying operating profit from continuing operations

88.3

135.8

Depreciation and loss on disposal of fixed assets

19.1

17.0

Amortisation of development costs, patents and licences

4.6

2.6

Underlying profit, before interest, depreciation and amortisation

112.0

155.4

Working capital movements

19.9

(15.6)

Other movements

(17.0)

(21.2)

Underlying operating cash flow from continuing operations

114.9

118.6

Fixed asset expenditure

(41.1)

(56.6)

Tax

(6.1)

(17.2)

Interest

(23.8)

(22.5)

Underlying free cash flow

43.9

22.3

Fixed asset expenditure across the Group was £41.1 million (2011: £56.6 million). This included £6.9 million (2011: £19.7 million) of expenditure associated with the construction of new facilities at our sites in Salisbury and Australia.

Tax payments were significantly lower than last year, principally due to the lower profits of the Group. However, the level of payments was also reduced due to the availability of R&D tax credits, lower UK tax rates, and the timing of payments.

Interest payments increased due to the higher level of gross debt during 2012.

Working capital

A summary of working capital balances is set out below:

2012

£m

2011

£m

Variance

£m

Inventories

113.8

146.8

(33.0)

Trade receivables

90.9

109.0

(18.1)

Contract receivables

87.6

55.1

32.5

Trade payables

(100.2)

(105.3)

5.1

Advance payments

(11.7)

(48.7)

37.0

Accruals and deferred income

(45.6)

(20.9)

(24.7)

Other working capital items

(29.5)

(10.8)

(18.7)

Total working capital

105.3

125.2

(19.9)

Total working capital days

52

63

Overall working capital decreased by 16% on 2011. Total working capital days have also decreased since last year at 52 days (2011: 63 days). The decrease in working capital is largely due to general improvements in receivables, together with a £10 million reduction associated with the marine business, which was included within the October 2011 figures but not in the October 2012 figures. Contract receivables have increased, largely due to higher revenue at Chemring Detection Systems and the adoption of contract accounting by NIITEK for its new HMDS IDIQ contract received during the year. The increase in contract receivables, which was the result of a doubling of revenue accounted for under long term contracts to 37% of total revenue, is compensated for by the decrease in inventories.

The Group's level of working capital is a key focus area, and initiatives to raise working capital efficiency will be implemented in the current financial year.

Net debt, facilities and going concern

Net debt at 31 October 2012 was £244.8 million (2011: £262.7 million), a decrease of £17.9 million or 7%. The Group had £143.9 million (2011: £150.1 million) of undrawn borrowing facilities at the year end.

On 14 January 2011, the Group completed a refinancing of its bank facilities with a syndicate of five banks. The resulting facilities, which are unsecured, total £230 million. The term of the facilities is to April 2015, with an option to extend for twelve months.

In addition to the bank facilities, the Group has outstanding fixed interest loan notes in the US, repayable in full in November 2016 ($80 million), November 2017 (£12.5 million and $125 million), and November 2019 ($200 million).

The Group is subject to two key financial covenants, which are tested quarterly, relating to the ratio between underlying earnings before interest, tax, depreciation and amortisation (underlying EBITDA) and debt ('debt ratio'), and the ratio between underlying EBITDA and finance costs ('interest cover'). The revolving credit facility and the loan note agreements have different covenant compliance calculations, and have therefore been separated out below - the primary difference being that the revolving credit facility uses consolidated net debt in the calculation whereas the loan note agreements require consolidated total debt to be used. The Group complied with both these covenants throughout the year, and the position at the year end is detailed below:

2012

2011

Covenant ratio - revolving credit facility

Maximum allowed ratio of consolidated net debt to underlying EBITDA

3.0

3.0

Actual ratio of consolidated net debt to underlying EBITDA

2.1

1.6

Minimum allowed ratio of underlying EBITDA to finance costs

4.0

4.0

Actual ratio of underlying EBITDA to finance costs

6.8

10.4

Covenant ratio - loan note agreements

Maximum allowed ratio of consolidated total debt to underlying EBITDA

3.0

3.0

Actual ratio of consolidated total debt to underlying EBITDA

2.8

2.1

Minimum allowed ratio of underlying EBITDA to finance costs

3.5

3.5

Actual ratio of underlying EBITDA to finance costs

6.8

10.4

The loan note consolidated total debt to EBITDA covenant is higher than the previous year, largely due to the reduction in profitability in the year.

Gearing at the year end was 56% (2011: 55%). A summary of debt is set out below:

2012

£m

2011

£m

Cash

96.0

91.9

Loans and finance leases

(79.6)

(94.4)

Loan notes

(261.2)

(260.2)

(244.8)

(262.7)

The directors have acknowledged the latest guidance on going concern. Whilst the current volatility in financial markets has created general uncertainty, the Group has significant working capital headroom. The Group has been in compliance with its bank and loan note covenants throughout 2012, and is forecast to be in compliance for the coming twelve months. Thus, the directors have a reasonable expectation that adequate financial resources will continue to be available for the foreseeable future.

Dividends

The Board is recommending a final dividend for the year of 4.2p (2011: 10.8p). With the interim dividend paid of 5.3p (2011: 4.0p), this gives a total dividend for 2012 of 9.5p (2011: 14.8p). The total dividend for the year reflects the Company's policy outlined last year, to provide dividends covered three times by earnings.

Shareholder returns

Underlying basic earnings per ordinary share* was 28.5p (2011: 50.0p), a decrease of 43%. Basic earnings per share were 6.8p (2011: 37.7p), a decrease of 82%.

The total dividend per ordinary share of 9.5p (2011: 14.8p) is covered 3.0 times (2011: 3.4 times) by the underlying earnings per share*.

Shareholders' funds at the year end were £433.5 million (2011: £475.4 million), a decrease of 9%.

Board of Directors

There have been a number of changes at Board level during the last twelve months. As outlined in last year's report, Vanda Murray joined the Board as a non-executive director in November 2011, and David Evans retired from the Board at the Annual General Meeting in March 2012. Mark Papworth was appointed to the Board as Chief Executive at the start of the new financial year, succeeding David Price who resigned at the end of October 2012. Steve Bowers joined the Board as Finance Director at the beginning of January 2013, replacing Paul Rayner who resigned in July 2012.

Nigel Young, who was Interim Chief Financial Officer between August 2012 and January 2013, will join the Board as a non-executive director at the end of April 2013, after completing a specific reorganisation project. He will become Chairman of the Audit Committee, succeeding Lord Freeman who plans to retire from the Board at the end of the year.

Sir Peter Norriss, who has been a non-executive director since May 2004, has indicated his intention to retire from the Board at the Annual General Meeting. During his time with the Group, Peter has provided the Board with invaluable guidance, and I would like to take this opportunity to thank him on behalf of the Board and wish him well in the future.

Operational priorities

Since his appointment in October 2012, Mark Papworth has identified five key priorities for the year ahead:

· To strengthen and simplify the management structure

As noted above, Steve Bowers has joined the Board as Group Finance Director. Steve was formerly Group Finance Director of Umeco PLC. In addition, Jim Devine has been appointed as Group HR Director, joining the Group from Centrica plc. We have recently announced measures internally to streamline our head office and divisional structure, in order to improve operating efficiencies. Further work to standardise and simplify policies and procedures, reporting lines, and the sharing of best practice across the Group is underway.

· Integration of operating units

We have also started the process of integrating similar businesses to leverage the size and scale of these operations, as well as extracting those synergies that exist. Alloy Surfaces and Kilgore were the first to start this process, and NIITEK and Chemring Detection Systems have followed. We will evaluate other opportunities and prioritise them in terms of the potential business benefit, balanced by the cost and resource required to implement. As we execute each integration project, we will apply a consistent review process to ensure that we deliver the maximum improvements that can be achieved.

· Operational performance improvements

Following the integration, we intend to improve the underlying operational performance of all the operating businesses. A key element of this process will be to upgrade operational leadership, at the same time as driving performance through ownership and accountability, rigorous measurement and continuous communication, such that everyone in the organisation is aware of current performance and future goals.

· Focused business development

Whilst our traditional markets remain challenging, there are opportunities to be won. We have focused our international development activity to concentrate equally on selling new products to old customers, as well as selling new products to new customers. At the same time, we are looking at ways to exploit better the cumulative effect of a more co-ordinated sales approach across the Group. We have also started to consider the opportunities of applying our technology to non-defence markets.

· Prioritisation of cash and cost management

Some of the obvious excesses that the business can no longer afford have already been addressed. This has included the closure of our Pall Mall office, with other divisional offices being considered, and the implementation of a robust review of all discretionary spend. We have agreed a new delegated level of authority across the Group, which will allow us to better control those decisions and actions that impact the cost base of the Group. There is also much work to do to improve our working capital performance and cash generation. Performance in these areas will be a key measurement of management performance going forward. Successful managers in Chemring in the future will be those that can deliver not only profit but also cash.

The programme of work needed to deliver all of these priorities is not yet fully defined, and the actions required will take the next twenty four months to complete. Whilst we expect all these actions to benefit the Group, we do not anticipate that material benefits of this recovery programme will be reflected in improvements to 2013 results.

Outlook

The US defence market will remain vulnerable to budget uncertainties during the coming year, and the lack of clarity over defence expenditure is likely to continue to erode market confidence and adversely affect the procurement process, as purchase decisions are delayed.

Similarly, in the UK, funding for new and existing programmes is expected to remain constrained during the course of 2013, as the MoD's review of its procurement processes continues. Downward pressure on European defence spending, as a result of deficit reduction programmes, is also expected to continue.

Overall, therefore, the difficult market conditions that contributed to the Group's disappointing performance in 2012 are expected to continue in 2013.

However, against this challenging environment, Chemring's strategy will be to drive improvements in operational performance and structure the business in such a way as to provide greater resilience. At the same time, the Group will continue to pursue the opportunities that exist within non-NATO territories, where defence spending may be less affected by the same constraints. Although the defence industry is facing challenges, Chemring's leading market positions, innovative products and manufacturing expertise should ensure the Group's underlying business remains robust in the face of market pressures. Whilst the new management team is actively addressing these issues and opportunities, 2013 is still expected to be a challenging year for Chemring, and therefore the Board's expectations for the year remain unchanged.

RESPONSIBILITY STATEMENT OF THE DIRECTORS ON THE ANNUAL REPORT AND ACCOUNTS

The responsibility statement below has been prepared in connection with the Company's full Annual Report and Accounts for the year ended 31 October 2012. Certain parts thereof are not included within this announcement.

We confirm to the best of our knowledge:

1.

The financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

2.

The Chairman's Statement and the Business Review, which are incorporated into the Directors' Report, include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.

This responsibility statement was approved by the Board of Directors on 24 January 2013 and has been signed on its behalf by Mr M Papworth and Mr S Bowers.

Basic earnings per ordinary share from continuing and discontinued operations

7.9p

39.8p

Diluted earnings per ordinary share from continuing and discontinued operations

7.8p

39.4p

Dividend per ordinary share

4.2p

14.8p

Net debt (£m)

244.8

262.7

Shareholders' funds (£m)

433.5

475.4

* Further information about non-underlying items can be found in Note 3

CONSOLIDATED INCOME STATEMENT

for the year ended 31 October 2012

2012

2011

Underlying

Non-

Underlying

Non-

business

underlying

business

underlying

performance*

items

Total

performance*

items

Total

£m

£m

£m

£m

£m

£m

Revenue from continuing operations

740.3

-

740.3

724.1

-

724.1

Operating profit from continuing operations

88.3

(51.3)

37.0

135.8

(34.8)

101.0

Share of post-tax results

of associate

0.1

-

0.1

0.1

-

0.1

Finance income

0.1

-

0.1

0.1

-

0.1

Finance expense

(18.4)

-

(18.4)

(15.8)

-

(15.8)

Profit before tax from continuing operations

70.1

(51.3)

18.8

120.2

(34.8)

85.4

Tax

(15.1)

9.5

(5.6)

(27.3)

11.9

(15.4)

Profit after tax from continuing operations

55.0

(41.8)

13.2

92.9

(22.9)

70.0

Discontinued operations

Profit after tax from discontinued operations

2.1

-

2.1

3.9

-

3.9

Profit after tax

57.1

(41.8)

15.3

96.8

(22.9)

73.9

Earnings per ordinary share

From continuing operations

Basic

28.5

6.8

50.0

37.7

Diluted

28.1

6.7

49.5

37.3

From continuing operations and discontinued operations

Basic

29.6

7.9

52.1

39.8

Diluted

29.2

7.8

51.6

39.4

* Further information about non-underlying items can be found in Note 3. The non-underlying items charge of £51.3 million is shown net of £10.3 million profit on disposal arising from the sale of the marine business.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 October 2012

2012

2011

£m

£m

Profit after tax for the year attributable to equity holders of the parent

15.3

73.9

Items that will not be reclassified subsequently to profit or loss:

Actuarial losses on defined benefit pension schemes

(2.7)

(1.8)

Movement on deferred tax relating to pension schemes

0.7

0.4

(2.0)

(1.4)

Items that may be reclassified subsequently to profit or loss:

Losses on cash flow hedges

-

(0.1)

Exchange differences on translation of foreign operations

(20.1)

(7.4)

Deferred tax on exchange differences on translation of foreign operations

0.7

0.3

(19.4)

(7.2)

Total comprehensive income for the year attributable to

equity holders of the parent

(6.1)

65.3

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 October 2012

Share

Special

Share

premium

capital

Hedging

Revaluation

Translation

Retained

Own

capital

account

reserve

reserve

reserve

reserve

earnings

shares

Total

£m

£m

£m

£m

£m

£m

£m

£m

£m

At 1 November 2011

2.0

230.6

12.9

-

1.4

(19.5)

254.6

(6.6)

475.4

Profit after tax for

the year

-

-

-

-

-

-

15.3

-

15.3

Other comprehensive

income for the year

-

-

-

-

-

(20.1)

(1.3)

-

(21.4)

Total comprehensive

income for the year

-

-

-

-

-

(20.1)

14.0

-

(6.1)

Ordinary shares issued

-

0.1

-

-

-

-

-

-

0.1

Dividends paid

-

-

-

-

-

-

(31.1)

-

(31.1)

Share-based payments (net of settlement)

-

-

-

-

-

-

(1.8)

-

(1.8)

Transactions in own shares

-

-

-

-

-

-

-

(3.0)

(3.0)

Transfers between reserves

-

-

-

-

(0.1)

-

0.1

-

-

At 31 October 2012

2.0

230.7

12.9

-

1.3

(39.6)

235.8

(9.6)

433.5

Share

Special

Share

premium

capital

Hedging

Revaluation

Translation

Retained

Own

capital

account

reserve

reserve

reserve

reserve

earnings

shares

Total

£m

£m

£m

£m

£m

£m

£m

£m

£m

At 1 November 2010

1.8

120.4

12.9

(2.7)

1.4

(12.4)

209.0

(7.2)

323.2

Profit after tax for

the year

-

-

-

-

-

-

73.9

-

73.9

Other comprehensive

income for the year

-

-

-

(0.1)

-

(7.1)

(1.4)

-

(8.6)

Total comprehensive

income for the year

-

-

-

(0.1)

-

(7.1)

72.5

-

65.3

Ordinary shares issued

0.2

110.2

-

-

-

-

-

-

110.4

Dividends paid

-

-

-

-

-

-

(22.7)

-

(22.7)

Share-based payments (net of settlement)

-

-

-

-

-

-

(2.1)

-

(2.1)

Current tax relating to share-based payments

-

-

-

-

-

-

0.7

-

0.7

Transactions in own shares

-

-

-

-

-

-

-

0.6

0.6

Transfers between reserves

-

-

-

2.8

-

-

(2.8)

-

-

At 31 October 2011

2.0

230.6

12.9

-

1.4

(19.5)

254.6

(6.6)

475.4

CONSOLIDATED BALANCE SHEET

as at 31 October 2012

2012

2011

£m

£m

£m

£m

As restated#

As restated#

Non-current assets

Goodwill

214.8

243.7

Development costs

31.0

23.3

Other intangible assets

167.4

191.5

Property, plant and equipment

240.0

231.1

Interest in associate

1.4

1.5

Deferred tax

16.9

21.7

671.5

712.8

Current assets

Inventories

113.8

146.8

Trade and other receivables

193.0

190.8

Cash and cash equivalents

96.0

91.9

Derivative financial instruments

1.0

1.9

403.8

431.4

Total assets

1,075.3

1,144.2

Current liabilities

Borrowings

(74.0)

(86.0)

Obligations under finance leases

(1.7)

(2.0)

Trade and other payables

(201.5)

(212.4)

Provisions

(2.8)

(2.5)

Current tax liabilities

(5.2)

(5.6)

Derivative financial instruments

(0.1)

(1.5)

(285.3)

(310.0)

Non-current liabilities

Borrowings

(262.1)

(262.1)

Obligations under finance leases

(2.9)

(4.4)

Trade and other payables

(4.3)

(1.2)

Provisions

(4.9)

(2.4)

Deferred tax

(52.7)

(59.0)

Preference shares

(0.1)

(0.1)

Retirement benefit obligations

(27.0)

(25.2)

Derivative financial instruments

(2.5)

(4.4)

(356.5)

(358.8)

Total liabilities

(641.8)

(668.8)

Net assets

433.5

475.4

Equity

Share capital

2.0

2.0

Share premium account

230.7

230.6

Special capital reserve

12.9

12.9

Revaluation reserve

1.3

1.4

Translation reserve

(39.6)

(19.5)

Retained earnings

235.8

254.6

443.1

482.0

Own shares

(9.6)

(6.6)

Equity attributable to equity holders of the parent

433.5

475.4

Total equity

433.5

475.4

# The restatement above relates to the finalisation of the fair value of acquired assets from prior year acquisitions

CONSOLIDATED CASH FLOW STATEMENT

for the year ended 31 October 2012

2012

2011

Note

£m

£m

Cash flows from operating activities

Cash generated from continuing underlying operations

114.9

118.6

Cash generated from discontinued underlying operations

3.3

6.0

Cash generated from underlying operations

A

118.2

124.6

Acquisition and disposal related costs

(5.5)

(6.6)

Restructuring and incident costs

(10.1)

(6.7)

Cash generated from operations

102.6

111.3

Tax paid

(6.1)

(17.2)

Net cash inflow from operating activities

96.5

94.1

Cash flows from investing activities

Dividends received from associate

0.1

0.1

Purchases of intangible assets

(11.0)

(12.9)

Purchases of property, plant and equipment

(30.1)

(44.1)

Proceeds on disposal of property, plant and equipment

-

0.4

Receipts from sales of trades or businesses (net of cash transferred)

21.8

-

Acquisition of subsidiary undertakings (net of overdraft assumed)

-

(58.0)

Net cash outflow from investing activities

(19.2)

(114.5)

Cash flows from financing activities

Dividends paid

(31.1)

(22.7)

Interest paid

(23.8)

(22.5)

Proceeds on issues of shares

-

110.4

New borrowings

12.5

107.2

Capitalised facility fees

-

(4.8)

Repayments of borrowings

(23.0)

(112.6)

Proceeds from new finance leases

-

3.4

Repayments of finance leases

(1.8)

(2.6)

Purchase of own shares

(4.8)

(1.5)

Net cash (outflow)/inflow from financing activities

(72.0)

54.3

Increase in cash and cash equivalents during the year

5.3

33.9

Cash and cash equivalents at start of the year

91.9

58.4

Effect of foreign exchange rate changes

(1.2)

(0.4)

Cash and cash equivalents at end of the year

96.0

91.9

NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

for the year ended 31 October 2012

2012

2011

£m

£m

A. Cash generated from operations

Operating profit from continuing operations

37.0

101.0

Operating profit from discontinuing operations

3.1

6.0

40.1

107.0

Adjustment for:

Impairment of goodwill

22.5

-

Amortisation of development costs

4.3

2.4

Amortisation of intangible assets arising from business combinations

20.9

24.3

Amortisation of patents and licences

0.3

0.2

Loss on disposal of property, plant and equipment

3.4

0.5

Depreciation of property, plant and equipment

15.9

17.2

Gain on fair value movements on derivatives

(1.9)

(2.4)

Share-based payment (credit)/expense

(0.1)

0.2

Difference between pension contributions paid and amount recognised in Income Statement

0.6

(0.4)

Increase/(decrease) in provisions

2.8

(0.1)

Operating cash flows before movements in working capital

108.8

148.9

Decrease/(increase) in inventories

28.0

(1.2)

Increase in trade and other receivables

(8.2)

(22.5)

Decrease in trade and other payables

(20.2)

(13.5)

108.4

111.7

Add back non-underlying items:

Acquisition and disposal related costs

8.2

5.7

Restructuring and incident costs

11.9

7.2

Profit on disposal of businesses

(10.3)

-

Cash generated from underlying operations

118.2

124.6

B. Reconciliation of net cash flow to movement in net debt

Increase in cash and cash equivalents during the year

5.3

33.9

Decrease in debt and lease financing due to cash flows

12.3

9.4

Change in net debt resulting from cash flows

17.6

43.3

Foreign exchange differences

1.9

3.0

Amortisation of debt finance costs

(1.6)

(1.5)

Movement in net debt in the year

17.9

44.8

Net debt at start of the year

(262.7)

(307.5)

Net debt at end of the year

(244.8)

(262.7)

C. Analysis of net debt

As at

Cash

Non-cash

Exchange

As at

1 Nov 2011

flow

changes

movement

31 Oct 2012

£m

£m

£m

£m

£m

Cash at bank and in hand

91.9

5.3

-

(1.2)

96.0

Debt due within one year

(86.0)

10.5

(2.2)

3.7

(74.0)

Debt due after one year

(262.1)

-

0.6

(0.6)

(262.1)

Finance leases

(6.4)

1.8

-

-

(4.6)

Preference shares

(0.1)

-

-

-

(0.1)

(262.7)

17.6

(1.6)

1.9

(244.8)

Notes

1.

ACCOUNTS AND AUDITORS' REPORT

The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 October 2012 or 31 October 2011 but is derived from those accounts. Statutory accounts for 2011 have been delivered to the Registrar of Companies, and those for 2012 will be delivered following the company's Annual General Meeting. The auditors have reported on these accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report, and did not contain any statements required under either s498(2) or s498(3) of the Companies Act 2006.

The preliminary announcement has been prepared on the basis of the accounting policies as stated in the financial statements for the year ended 31 October 2012.

Whilst the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Company expects to publish full financial statements that comply with IFRSs on 18 February 2013 (see Note 7 below).

Underlying profit is used by the Board to measure and monitor the underlying performance of the Group. Set out below is a reconciliation of statutory operating profit and underlying operating profit.

2012

2011

£m

£m

Statutory operating profit from continuing operations

37.0

101.0

Add back:

Acquisition and disposal related costs

8.2

5.7

Restructuring and incident costs

11.9

7.2

Profit on disposal of business

(10.3)

-

Impairment of goodwill

22.5

-

Intangible amortisation arising from business combinations

20.9

24.3

Gain on fair value movements on derivatives

(1.9)

(2.4)

Underlying operating profit from continuing operations

88.3

135.8

Further details on the non-underlying items are provided earlier in this preliminary results announcement.

Profit before tax and underlying profit before tax also vary by the above amounts.

4.

EARNINGS PER ORDINARY SHARE

Earnings per share are based on the average number of shares in issue of 193,309,230 (2011: 185,633,996) and profit on continuing ordinary activities after tax of £13.2 million (2011: £70.0 million). Diluted earnings per share has been calculated using a diluted average number of shares in issue of 195,792,140 (2011: 187,636,114) and profit on continuing ordinary activities after tax of £13.2 million (2011: £70.0 million).

The earnings and shares used in the calculations are as follows:

2012

2011

Ordinary

Ordinary

shares

Shares

Earnings

Number

EPS

Earnings

Number

EPS

£m

000s

Pence

£m

000s

Pence

Basic

15.3

193,309

7.9

73.9

185,634

39.8

Additional shares issuable other than at fair value in respect of options outstanding

-

2,483

(0.1)

-

2,002

(0.4)

Diluted

15.3

195,792

7.8

73.9

187,636

39.4

The number of shares in issue differs from the number held by third parties due to the fact that the Group holds Chemring Group PLC shares in treasury.

Reconciliation from basic earnings per share to underlying earnings per share:

Underlying basic earnings are defined as earnings before acquisition and disposal related costs, restructuring and incident costs, profit on disposal of business, impairment of goodwill, intangible amortisation arising from business combinations and gain on fair value movements on derivatives. The directors consider this measure of earnings allows a more meaningful comparison of earnings trends.

2012

2011

Ordinary

Ordinary

shares

Shares

Earnings

Number

EPS

Earnings

Number

EPS

£m

000s

Pence

£m

000s

Pence

Basic

15.3

193,309

7.9

73.9

185,634

39.8

Non-underlying items*

41.8

-

21.7

22.9

-

12.3

Underlying

57.1

193,309

29.6

96.8

185,634

52.1

* Before non-underlying items (see Note 3) and tax thereon of £9.5 million

5.

DIVIDEND

The final dividend of 4.2p per ordinary share will be paid on 10 May 2013 to all shareholders registered at the close of business on 19 April 2013. The ex-dividend date will be 17 April 2013. The total dividend for the year will be 9.5p (2011: 14.8p). The final dividend is subject to approval by the shareholders at the Annual General Meeting, and accordingly, has not been included as a liability in the financial statements for the year ended 31 October 2012.

6.

RELATED PARTY TRANSACTIONS

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed.

7.

2012 FINANCIAL STATEMENTS

The financial statements for the year ended 31 October 2012 will be posted to shareholders on 18 February 2013. They will also be available from that date at the registered office, Chemring House, 1500 Parkway, Whiteley, Fareham, Hampshire PO15 7AF and will be posted on the Company's website at www.chemring.co.uk the following morning.